Welcome back to Melissa Making Cents. By now your Facebook feeds are full to the brim of adorable kids heading back to school on their 1st day. To me, there is nothing more adorable than seeing the “littles” carrying their big ole backpacks!
This time of year for older students and their families brings up a little bit of anxiety. College is right around the corner! For Seniors, we are coming down to crunch time. There are A LOT of deadlines to think about between now and graduation time. Sophomores and Juniors I’m also looking at you! It’s about time to sit down with your parents and start building your college plans.
Student loan debt is at a record high and growing
So let’s address a major topic today. Student loan debt is at a record $1.5 trillion, and is growing at a staggering pace each year of approximately 1% or $100 BILLION! According to an Experian report, in Texas alone we grew our student loan debt at 5.8% just last year! (It’s safe to insert the phrase, EVERYTHING is bigger in Texas) I’m challenging YOU to help us change this awful crisis.
For some lucky students, parents have been able to sock away money for college. But other families have been working too hard on reducing their own college debt to be able to save for their children’s college. Which just creates an inevitable cycle of perpetual student debt. Ever wonder why so many of us firmly believe that student loan debt is a scam? We are stuck paying these loans for 10-25 years, and sometimes longer. This also means that many of us are not able to think about saving for retirement until that huge burden is gone.
Student loans can strain relationships
But what else does this debt do? In some cases it creates mega problems between the kids and their parents. In a recent conversation, I asked a woman how her daughter was doing. (I knew she had just graduated the year before) The woman responded…. “I’m sorry I don’t know. She stopped speaking to me when I couldn’t afford to pay for her student loans.” My heart broke for her, I knew she had struggled to pay off her own student loans and was finally able to retire on a modest fixed income. The woman and her daughter had never sat down and set realistic expectations for her daughter’s college education.
So let’s get to the point. And listen to me on this. IT IS ENTIRELY POSSIBLE TO GO TO COLLEGE WITHOUT TAKING ON HUGE AMOUNTS OF STUDENT DEBT!! Now, go back and re-read that last sentence at least 4 times. Make it your Mantra. It is possible, and no it’s not just for those in an elite demographic world.
Saving FOR College vs Saving ON College
There are 2 phases in planning for college. #1 is the Saving FOR College Phase. This is where we can set aside money for education. #2 is what no one talks about. Saving ON College. I’ve listened to parents assume that their kids would get free rides to any college they wanted, because they were good students. Only to find out they made too much for Need based aid, and Merit awards at the chosen college were insignificant.
Saving ON College goes a little like this. The family needs to sit down to have a realistic conversation around the cost of college and what is affordable. What type of student do you have? High Merit/Low Need, High Merit/High Need, Low Merit/High Need or Low Merit/Low Need? What is our career path? As a rule of thumb students should NOT take out more in student loan debt than what their 1st year salary will be in their chosen career upon graduation. So for example, a new teacher in Texas may make $40,000 a year; whereas an engineer may come out of school with a starting salary of $60,000. Students need to consider their personal budgets after graduation when making decisions about colleges.
Know before you go - What is your Net Price for college?
Each college provides a Net Price Calculator on their website. USE IT! Learn the difference between the types of colleges and which schools are Need Based vs Merit Based. Develop a plan to use student loans wisely. Right now we are tasking our 17 and 18 year olds who may have never had a job, paid taxes, or had any exposure to personal finance to make one of the largest buying decisions of their life before their adult life has even begun.
Personally, I help my clients establish a college budget using the College Pre-Approval™ process to ensure students graduate with manageable student loan debt, without robbing mom and dad’s retirement. At that point we can effectively shop for schools that will meet our financial and academic needs.
Here is another sentence to commit to memory...IT IS ENTIRELY POSSIBLE TO KNOW IN ADVANCE HOW YOU WILL PAY FOR ALL 4 YEARS OF COLLEGE RIGHT DOWN TO THE PENNY! Write it down, say it again, and put it on a yellow sticky on your checkbook.
It is time that we start becoming smarter consumers of education. We HAVE to make some changes to help alleviate the national Student Loan Debt Crisis. Yes, a college education is a big expensive decision, but it doesn’t have to come at the cost of your family’s secure financial future.
So I’ll leave you here for today. Until next time….this is Melissa Making Cents
Melissa Anne Cox
CERTIFIED FINANCIAL PLANNER™